While the number of franchise businesses in Indonesia is predicted to grow next year, supported by the ASEAN Economic Community (AEC), the country will simply become a market as franchisors will mostly come from other countries in the region, an official has said.

Amir Karamoy, chairman of the national committee for franchising and licenses at the Indonesian Chamber of Commerce and Industry (Kadin), said the number of franchises could grow by 30 percent as of next year from the current 230 foreign franchises in the country.

“Approaching the AEC, [foreign franchises] will come from the food and beverage sector, health, especially beauty clinics, as well as education and retail,” he said recently.

Given the unfriendly regulations on franchise business, Amir said, Indonesia would likely serve just as a market.

He predicted many franchises would come to Indonesia only after they first establish headquarters in countries like Thailand, Singapore and the Philippines. They would then take advantage of the free trade between those ASEAN countries and Indonesia.

This development was predicted because of the less-than-conducive business climate in Indonesia, including the hassle in acquiring permits.

“Compared to the business climate in Vietnam, which is very friendly to foreign investors and has a less complicated process to acquire permits, it’s going to be hard,” he said.

Indonesia is currently attempting to address the business permit issue with economic policy packages aimed at cutting bureaucratic red tape. The Investment Coordinating Board (BKPM) has also provided a three-hour licensing service for eight permits, including business registrations (TDP) for companies with a minimum investment of Rp 100 billion (US$7.2 million) or that plan to employ a minimum of 1,000 workers, as part of the package.

The policy packages helped Indonesia jump 11 places up the ranks of the World Bank Doing Business 2016 report to 109, but it still lags behind Vietnam, which stands at 90th place.

Amir said the issues regarding franchises in Indonesia also remain because of counterproductive regulations like the 2013 Trade Ministry Regulation that stipulates that modern franchised retail shops must source 80 percent of the goods they trade locally.

“Foreign companies and franchises sometimes need certain things that cannot be made locally or are produced in limited number. The government should just give some incentives to foreign franchises so they can have a chance to develop an industry for import substitution,” he said.

He said that approaching the AEC, the government should also work on persuading foreign franchises to open regional headquarters in Indonesia, so the country can get more benefit from the foreign franchises through taxes and human resource development.

The AEC is expected to boost the free movement of people, goods and services among ASEAN member countries.

So far, he said, the total combined revenues from local and foreign franchises this year is expected to hit Rp 200 trillion, an increase from Rp 180 trillion last year. From the total revenues, an estimated 60 percent came from foreign franchises.

Amir also said that local franchises, which currently number around 400, would also continue growing with the AEC.

“I think they’ll still develop, with their own creativity. I hope their creativity will not be hampered by regulations like in the case with Go-Jek,” he said, referring to the homegrown application-based ojek (motorcycle taxi) company, which was nearly banned by the government because existing law does not allow public transportation using two-wheel vehicles.

Local franchises still have potential to sell such products as food and beverages and batik fabric, he said.

Amir also urged the government to develop a single body to develop local franchises, mirroring a current practice in Malaysia.

“They will need to have standards like the ISO [International Standards Organization] and there should be a body to help them get that,” he said. (fsu)